The True Cost of Hiring a Permanent Employee vs a Contractor

The tech industry has always been a large user of contract professionals and has recently become even more focused on the benefits of contract, project-based, or work package assignments. As businesses navigate the ever-changing job market, it’s crucial to understand the differences between hiring a full-time employee and a contractor. In this article we will weigh the costs and benefits of each option and consider the impact on the business's bottom line.

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Differences Between a Full-Time Employee and a Contractor

While the definitions may vary from country to country, there are a few elements that are generally common. It is important to note that there will be various employment and contractor rights applicable depending on where your company is based.

Full-time employees are those who are on a permanent contract where they work for a minimum amount of hours per week (typically around 38 hours). They are generally entitled to paid leave and a written notice or payment on termination. These employees are considered to be a permanent member of the staff and often receive benefits such as health insurance, retirement plans, and paid time off.

On the other hand, contractors are employed on an agreed short-term basis. The period of work can vary between days and months. Contracts vary depending on the agreed working arrangements between the contractor and employer but usually take the form of either a fixed-term (specific time only) or renewable contract (can be continued for a longer period if both parties agree). Because contractors are not considered permanent members of the staff, they typically do not receive the same benefits as full-time employees. This means that if their work is not satisfactory, you can terminate their contract without a notice period (provided you have a contract for services in place that allows for this).

Additional Expenses for Permanent Employees

A contractor’s hourly rate will generally be higher than that of a full-time employee for a number of reasons, but primarily to supplement the lost benefits that an employed worker is entitled to. While the hourly rate for a permanent employee may be lower than that of a contractor, employers must also consider the additional costs associated with hiring a permanent staff member. These include:

One of the pros of hiring a contractor is they should have their own equipment / tools as a self-employed contractor. In contrast, permanent employees may require additional equipment such as:

These added expenses can add up and should be taken into consideration when making a hiring decision.

Pros and Cons of Hiring a Full-Time Employee

The pros of a full-time employee are:

However, the are some cons:

Pros and Cons of Hiring a Contractor

The pros of hiring a contractor are:

So what are the downsides?

Consider Your Business Needs

It is generally thought that contractors are a more cost-effective and straightforward option, however, it ultimately depends on the nature of your business, so do not feel compelled to replicate what others are doing.

When making the decision between hiring a full-time employee or a contractor, it is important to consider the specific needs of your company. Full-time employees may be better suited for long-term projects and positions that require a high level of commitment and continuity. Contractors may be better suited for short-term projects or positions that require specific skills that are not available within the company. If your business is taking on longer-term projects, the costs of a contractor will quickly add up.

Can’t decide? There are many factors to consider in making this decision. Let our team of experts, including consultants and talent managers, assist you in making the best decision. They’ll provide you with helpful advice and support every step of the way!



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